Strong farms will proactively assess risk and take action to protect their business.
In my daily interactions, I make a point of engaging with those around me to understand what is top of mind — the challenges they face, the decisions they are weighing and the concerns shaping their outlook.
My work as a consultant, facilitator of farm manager peer groups and active participant in industry events, trade shows, conferences and seminars gives me the opportunity to engage with a broad spectrum of farm operators across various geographies and sectors.
These discussions provide a unique forum for producers to share insights, examine strategies and dissect the evolving realities of Canadian agriculture.
Common themes emerge in these conversations — inflation, labour shortages, equipment costs, commodity prices and market access. More recently, international trade has become a focal point, with many farmers uncertain about how shifting policies and economic pressures will affect their businesses in the weeks and months ahead.
These challenges are both tangible and abstract, immediate and long-term, with no clear path ahead. In times like these, disciplined risk management is not just useful — it is essential.
I do not need to inform readers of the uncontrollable variables and tight margins that leave little room for error in agriculture. Farms cannot simply adjust supply in response to demand in real time.
Unlike a factory that may be able to throttle production up or down based on demand, a farmer cannot delay planting until prices and prospects improve. The biological cycles that underpin production mean that farming decisions today fail to yield results for months or years into the future.
Other industries also face significant risks, some with catastrophic downside implications, though they often have robust mechanisms for risk transfer. This exposure, combined with the reality that food production is essential for human thriving, makes agriculture unique in its risk profile.
Risk is inherent in all human activities; farming is no exception. The weather is unpredictable, markets fluctuate and global trade policies shift without warning.
Today’s farms are facing challenges that test even the most resilient operations. Novel issues arise before previous ones can be effectively resolved, layering more uncertainty into the equation.
How can the industry best prepare to meet these uncertain risks?
Traditionally, farmers have considered risk from a narrow perspective, closely correlated with operations and pricing.
However, being adequately prepared to manage unprecedented rates of change within the industry requires a significantly broader and well-defined process to identify, prioritize and mitigate risks. Not all can be avoided, but there are practical steps Canadian farms can take to limit exposure and build resilience.
Risk is generally thought of as events that result in poor business performance. However, it is important to note that risk itself can also be good for business. Eliminating all risk also eliminates potential opportunities.
A comprehensive, well-documented and implemented process of risk management enables farmers to seek out and capitalize on business opportunities while protecting operations from undesirable outcomes or severe losses.
Risk management is the process of identifying, measuring and managing uncertain events. These evaluations can be both qualitative and quantitative.
Risk in farming comes in many different forms, but the pressures farms face today can largely be grouped into four core areas. Many of these have been persistent, but a few have encountered recent complications that have changed their landscape.
Financial risk
Thinning profit margins, increasing leverage, rising land values and expensive equipment costs can turn what once seemed like smart investments into financial liabilities.
Fluctuating interest and currency exchange rates can have moderate to severe impacts on revenues and expenses, and therefore, profits.
This is a fraught landscape, and monitoring its drivers, indicators and signals is a full-time job done by countless professionals worldwide.
While it is often easiest to concentrate on the negative impacts of financial risk, there can also be substantial positive rewards for successfully managing this risk.
Market risk
Market risk is a fond topic of many of the country’s commodity producers. It, too, is something that entire careers are devoted to, yet many farms I engage with enjoy the opportunity to examine prices for volatility, signals and trends, pore through contract options, terms and premiums, and analyze delivery methods and market access.
Supply chain constraints were once substantial in affecting these factors, and now markets for inputs and outputs are shrouded in uncertainty and doubt.
Strategic business risk
Strategic business risk comes with business model and investment decisions encompassing growth and planning, reputation, marketing and brand, competition conditions and governmental trade and policy. These are often large topics that are not given daily consideration but likely occupy a portion of every farm’s attention at all hours of the day and night.
They are harder to condense and mitigate but are significantly relevant, and more farms are paying attention to these as their complexities rise with time.
Operational business risk
Operational business risks are front and centre for businesses, tied to their daily functions. The impacts of labour, technology, production, weather, legal, transportation and business relationships need constant attention, monitoring and action.
Most farms have direct involvement with each of these risk factors and are best equipped to evaluate and intervene themselves.
Every farm business will have a unique blend of exposure to these various risks, and their mitigation strategies vary.
Knowing how and where to develop and deploy strategies is best done by first prioritizing risks and their responses. This is helped by quantifying the probability and impact of the risk to your business and then proceeding to attack the risks with the greatest probability and impact.
Probability is the likelihood that an event will occur, while impact is the magnitude of the consequences if the event takes place.
Assigning a numerical value to these, on a scale of one to 10 or one to five, and then multiplying probability by impact is an effective method to quantify risk.
In this approach, a catastrophic yet rare event still registers as an elevated risk, while a mild but frequent event remains a moderate risk, aligning with real-world decision-making priorities.
How farms develop strategies and mitigations will depend on their unique situations, resources and circumstances, but using an approach like this will help direct focus on what can be done for the looming threats and opportunities ahead.
It would help bring what is at stake into perspective and begin to formulate the ideas, questions and methods needed to better understand and approach the concern.
Risk will always be one of the defining features of farming, but that does not mean it can be left unaddressed. The difference between operations that struggle and those that succeed often comes down to preparation.
Farms that proactively manage risk — whether through financial planning, production strategies, operational efficiencies or professional advisers — position themselves to be adaptable, resilient, and ultimately, more profitable.
While we cannot control markets, weather or trade policies, we can control our response to these challenges. Risk management is not about eliminating uncertainty; it is about being prepared for it.
The farms that will stand strongest in the next decade are not the ones that simply hope for the best. They are the ones that recognize risk, assess its impact and probability and take meaningful actions to protect their businesses today so they are still here to farm tomorrow.
By making risk management a proactive priority, farms can safeguard their future and seize opportunities that might otherwise go unnoticed.
Blake Copley is a farm management consultant with Backswath Management Inc. He can be reached at 825-712-7684 or .
